The_Unwind
Education

Risk/ Reward Avoiding Road Kill in a Trade

TVC:NDX   NASDAQ 100 Index
Every time an trader/investor puts their own money into a trade,
they immediately become involved, often emotionally with the outcome.

Traders should always measure the risk, and the reward
before entering into a new position.

What price gains are they looking to achieve by entering the market now.
If they enter a trade at this price, what price are they looking to get out at ?

Often the sense of potential reward ,overwhelms the initial purchase.
Dollar signs start flashing, and it is hard not to get caught up in the excitement.
You are now in the market, with a chance to make a lot of money.

Now look at the reverse side of the same coin.
The new purchase immediately puts the trader at the whim of the market.
Most traders believe passionately that they are right.
But when the market suddenly and sharply goes in the opposite direction than they had planned,
they find themselves in the situation where they could lose a lot of money.

What will they do ?
Do they place their stop, and immediately get out?
Do they double down, and $ cost more into the trade,
hoping the market will bail them out ?

Trading should not be a random event.
Like planning your vacation, when you didn't know your destination.

Successful traders, those who continually there their own capital to risk,
know ahead of time two separate numbers.
What price they plan to enter the market at, and what price to exit.
That is measuring measuring risk/ reward, perhaps the most critical component of the trade.

As an example, Nasdaq 100 last week,broke back successfully into the prior pattern,
( As Shown in Chart Illustration) which is a bullish event.
It signifies that the breakdown out of that pattern previously may have been false, a potential bear trap.
Now if you are a trader holding short from below that pattern,
convinced the market is heading lower what will you do at this point ?

Are you going to let the market decide where it wants to take you, ( Random )
Or are you going to have had price parameters previously known ( Determined)
and simply exited your trade as planned.

Too often losing traders fall into the random event side of the equation.
And as they lose more and more money that way, they become emotional and even angry.
Obviously not a productive positive place to be in as a trader.

So do yourself a favor, the next time before you enter the trade
that you think is going to make you a small fortune.

Know what price you plan to ENTER the market and what price you plan to EXIT.
And place those numbers with a Good Till Cancel Order,on the books, on your account.

That way you are a determined trader,who knows upfront your reward,
instead of placing yourself in a random like event,
that could ultimately cost you the trader road kill, wrong place/wrong time/ loss of everything.

THE_UNWIND
1/6/19
NEW YORK

Very good lesson. Always have a plan!! What do you think of my NASDAQ Chart? Thanks for any feedback
Reply
The chart shows a double bottom pattern with a higher low so NDX is possible to go up if it's closed above 6422 decisively. Is this an hourly chart or two hours chart?
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The_Unwind dragonus
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dragonus The_Unwind
@The_Unwind, Thanks. This is my first post on Tradingview: .
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LoLBeach dragonus
@dragonus, ... this was the exact reason for turning on the market and revisit my fundamentals.
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Tried both the ways,

chose two trades after 3-4 technical pattern were formed on the chart
in 1 trade, When i did not put a Stoploss point, market kept on going in opposite direction and exited at a much loss position
in 2nd trade, when i exited on a stoploss point, market reversed sharply from there

Ended up loss in both trades and Cursing my destiny
Dont know which way to follow
Reply
markrivest sumeetlunia
Hi @sumeetlunia,
What happened to you happens to every trader. The key to success is learning how to overcome disappointment.
Use stop loss orders on EVERY trade. One big winning trade will over come a dozen small losing trades.

Reply
So true. Been there. Done that. I have often exited a potential losing trade by sticking to my entry/exit plan just to see the market switch and continue in the direction that i have just exited.
A few trades like that and the temptation to hang on to a losing trade starts to loom. It's a tough game.
I appreciate the reminder.
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The feeling of a loss is hard to overcome.
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Well said, couldn’t agree more!
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